Putting the Drug Debate into Context: the State of Pharmaceutical Cost Reform in the U.S.

Man at his laptop reaches for a prescription bottle.
The U.S. is currently the only advanced society without government restrictions on pharmaceutical drug prices.

U.S. medical care has experienced huge and unsustainable spending increases—especially in drug prices—for decades. Under the Affordable Care Act, the Obama administration accelerated the value-based care movement to address key spending categories such as hospital and physician care. Value-based purchasing seeks to reduce spending by improving quality and efficiency to address unnecessary costs. Most stakeholders now have embraced this shift away from fee for service payment and recognize that much more needs to be done.

Drug pricing, on the other hand, has yet to be addressed effectively at the federal level. Prof. John E. McDonough, program director of Preparing for What’s Next in U.S. Health Reform, explains, “The U.S. is the only advanced society with no publicly accountable process to determine how much pharmaceutical drugs can be sold for. Every other leading nation uses the power of government to come to terms with this industry on pricing.”

There’s been recent U.S. Congressional action to address the issue, and some reform may happen in the near future—or not. What’s at stake, and how are the current proposed bills attempting to solve the problem?

The Potential for Drug Pricing Reform

Over the last two decades, patients and payers (health insurers, commercial and public) have experienced frequent shocks from high and rising medication costs. As a result, pressure has increased on the federal government to control costs.

“Congress has taken the cost of prescription drugs to the forefront, and made this a major topic in the upcoming campaign. It’s a pretty bipartisan issue—Democrats and Republicans don’t differ as much as you might think,” says program faculty member Elizabeth Seeley.

In the absence of a centralized, national-level plan to address drug costs, the pharma industry continues to evolve—while expanding costs at a rapid rate. “Technology and innovation are resulting in an era of medicine where new treatments are, at times, extremely expensive,” Seeley says. “There’s controversy around what the right prices should be for those treatments, and where the price is worth the new benefits.”

As new pharma offerings appear in the market, no centralized system ensures value—whether a drug’s reimbursement correlates with the level of benefit it provides. An efficient system sets payments to make the cost-value connection. While other countries utilize value-based pharmaceutical policies, the U.S. has not.

In 2018, the Trump Administration came out with a plan to contain costs for some drugs.  And in 2019, two bills were proposed in Congress that could address the cost problem —though neither tackles the larger relationship between drug pricing and value. Congress is assessing these bills to address the unsustainable costs felt by most Americans.

Three Proposed Pharmaceutical Policies in the US

Trump International Price Index

In 2018, the Trump administration released the International Pricing Index (IPI) proposal as an advanced notice of proposed rulemaking. The IPI would address drug costs paid by Medicare Part B—drugs administered by physicians at hospitals and in outpatient settings, including cancer and other specialty drugs. The bill proposed price caps based on the price of drugs in other countries. The Administration has not filed their plan in Congress, and has indicated different positions on the issue since then.

The House (Nancy Pelosi) Bill

The House proposal, H.R. 3 (116), caps out-of-pocket spending for Medicare patients, restructures the Medicare Part D benefit (which covers outpatient drugs) so that health plans have a stronger incentive to control drug costs, and limits price increases of approved drugs. For the top 25-250 drugs by spending, this plan would also tie Medicare’s reimbursement to the price of those drugs in other countries. These international price caps would apply to Medicare Part B and D drugs and all commercial health plans in the U.S.—making prices uniform for those drugs across the country. A Congressional Budget Office score found that the bill (H.R.3) would lower overall drug spending by $456 billion over ten years. In a largely partisan vote, the bill was approved by the House in December and has moved to the Senate with little or no likelihood of consideration through 2020.

The Senate Finance Committee Bill

Like the House plan, the Senate Finance Committee proposal, S. 2543, would cap out-of-pocket Medicare spending, restructure Medicare Part D, and limit some drug price increases. It differs from the House bill in its more moderate scope, focusing most attention on limiting drug price increases for seniors and disabled in Medicare program, and not limiting price hikes for anyone else. It also focuses more on the marketplace to address pricing problems, and does not include international pricing standards or standardization across commercial payers. The Trump administration has indicated support for the plan (even though the administration’s original proposal tilted toward the House version). Though the Senate Finance plan has achieved the most bipartisan support of the three—Majority Leader Mitch McConnell (R-KY) is wary of pharmaceutical industry opposition and is therefore not backing it. The result may be that neither of the plans comes to the Senate floor for a vote.

The Challenges of Finding a Long-Term Solution

The trade group PhRMA and drug company lobbyists offer formidable opposition to pricing reform. Pharma companies argue that attempts to reduce drug payments will stifle innovation. On the policy side, policymakers don’t know what the lowest possible price for maximum innovation is, and have different views on where that balance lies.

As pharmaceutical spending increases, discussion also has grown about the role of pharmacy benefit manager (PBM) firms, which manage prescription drug benefits on behalf of payers. PBMs have come under scrutiny about whose interest(s) they look out for as drug costs have increased.

Looking Forward

It’s unclear whether any of the bills will see success in Congress in 2020. As McDonough explains, “It is possible that something will happen in 2020 if both parties decide that it’s more important to bridge their differences to demonstrate seriousness of purpose to the public for whom controlling out-of-control drug prices is a top priority.”

“It depends on the degree of public anger going in 2020, especially post-Impeachment. If it gets hot enough, something might pass.”

“This is a turning point at which it would be prudent for all stakeholders to think about how they can be at the table, and what kind of constructive policy solutions can be offered,” adds Seeley. “How can we all work together? The problem’s not going away.”

Harvard T.H. Chan School of Public Health offers Preparing for What’s Next in U.S. Health Reform, which offers key lessons involving health reform from the nation’s leading policy experts.